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. Last Updated: 07/27/2016

Kazakhstan Stops Defending Tenge

ALMATY, Kazakhstan -- The Kazakh currency nose-dived Monday in the wake of the government's decision to allow it to trade freely, and residents of the former Soviet republic rushed to buy hard currency to limit their losses.

The tenge, which had long held steady at about 88 to the dollar, fell to 100 on the state-controlled currency market Monday. The government and the Central Bank decided Sunday to stop supporting the currency because it was depleting the Central Asian nation's hard-currency reserves.

Currency-exchange offices shut their doors Monday after a wave of panic dollar buying, and the black-market rate plunged to 200 tenge to the dollar.

Many people rushed to the banks, trying to withdraw their tenge deposits and convert them to hard currency. There were long lines at many bank offices, but all of them were giving cash without restrictions.

The government tried to quell the panic by promising to convert all bank savings into hard currency if depositors agree to freeze their accounts for nine months. The state-controlled media have run reports about black-market dealers trading in fake dollar bills.

Retail prices on most staples stayed virtually unchanged, but many vendors suspended wholesale operations, waiting for the currency to stabilize.

The government hopes the tenge will recover quickly thanks to a new rule obliging exporters to sell 50 percent of their hard-currency earnings on the currency market.

Exporters hailed the government's decision to stop supporting the currency, saying the artificially high tenge rate was hurting their business.

Prime Minister Nurlan Balgenbayev and Central Bank chairman Kadyrzhan Damitov went on television late Sunday to say the currency would be allowed to float.

"Kazakhstan's economy has started to decline, unemployment has increased and factories are being shut down. Trade turnover has been cut by $1 billion," Balgenbayev said. "That's why we are making this responsible statement, being aware of [the impact of] our action and hoping to ... increase our gold and currency reserves."

The prime minister said that only supply and demand would determine the dollar rate in the former Soviet republic.

Kazakhstan's minister for revenues, Zeinulla Kakimzhanov, said Monday that a reasonable rate for the tenge currency would be 110 to 120 to the dollar.

Balgenbayev insisted Kazakhstan would not default on any domestic or foreign debt.

Kazakhstan's economy remained fairly stable in the months following the August financial crisis that swept Russia, its neighbor and largest trade partner. Some 40 percent of Kazakhstan's trade is with Russia.

The International Monetary Fund estimated in January that the global and Russian financial crises had caused Kazakhstan losses equal to at least 5 percent of its gross domestic product.

The slump in oil prices has also hurt Kazakhstan, which is heavily dependent on their export for much of its state revenue.